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									towerswatson.com                                                                            Issue 36 November 2009
                                                                                    India |India | Issue |37 | February 2010



India market
LIFE INSURANCE UPDATE




                               INTRODUCTION
     Inside                    We are pleased to circulate our 37th quarterly newsletter on the life insurance
                               industry in India.
                               Regulatory developments in this quarter include the publication of the much
     Industry                  anticipated disclosure norms, the approval of ‘Health plus Life Combi Products’
                               and the proposed relaxation in the Union Budget for the service tax regime
     statistics                applicable to the life insurance companies. This quarter also witnessed a
                               significant number of new products in response to the IRDA’s circular capping
                               the charges on unit-linked insurance plans.
     Market update             The weighted new business premiums collected by the industry in the first nine
                               months of FY2009-10 have grown by around 13 per cent as compared to the
     New/potential entrants    same period last year, driven largely by the high growth of the Life Insurance
     Capital infusions/plans   Corporation of India (“LIC”).
     Appointments              INDUSTRY STATISTICS
     Other news
                               During the first nine months of FY2009-10, the weighted new premium of
                               private sector insurers registered a growth of around three per cent as
     Regulatory                compared with the same period last year. Against this, the LIC registered an
                               increase of 29 per cent.
     update                    The graph given below shows the weighted new premium income written by
                               private sector life insurers in the first nine months of FY2009-10 as per the
     IRDA guidelines           statistics released by the Insurance Regulatory and Development Authority
     The Union Budget          (“IRDA”). In this period, the life insurance industry collected a weighted new
     Other regulatory news     premium income of Rs379 billion. The new business market share of private
                               sector life insurers decreased to 56 per cent in this period, down from around
                               62 per cent in the corresponding period in the previous financial year. SBI Life
     Distribution              maintained its position as the leading private sector life insurer with a market
                               share of around ten per cent in terms of weighted new premium income. ICICI
                               Prudential Life (“ICICI Pru”) and Bajaj Allianz Life were second and third, with
     Distribution news         market shares of close to ten per cent and six per cent respectively.
     Bancassurance and
                                                           Weighted new business premium (in Rs million)
     other tie-ups
                                           SBI Life
                                    ICICI Prudential
     Products                          Bajaj Allianz
                                       Birla Sunlife
                                      Reliance Life

     Contact details               HDFC Standard
                                     Max New York
                                          Tata AIG
                                   Kotak Mahindra
                                           Met Life
                                              Aviva
                                         ING Vysya
                                    Canara HSBC
                                             Others

                                                       0       10,000     20,000        30,000     40,000     50,000
                                                                                in Rs millions

                                                               April 09 - December 09     April 08 - December 08


                               Source: IRDA website
                               Note: ‘Others’ includes companies with a market share of less than one per cent




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MARKET UPDATE                               convertible debentures (“FCD”) issue      insurance companies. The main
                                            to Goldman Sachs. A large                 amendments include:-
                                            proportion of this capital is expected
New/potential entrants                      to be invested in Max New York Life.         Not more than one family
                                                                                          member, close relative or
Tokio Marine Holdings has entered
into a life insurance joint venture
                                            Appointments                                  associate should be on the
                                                                                          Board of the insurer as an
(“JV”) with Edelweiss Capital, to be                                                      ‘Independent Director’.
called Edelweiss Tokio Life                 Amitabh Chaudhry has been
Insurance. The new life insurance           appointed as the MD and CEO of
                                            HDFC Standard Life. Prior to this            The company must disclose
company will reportedly have an
                                            appointment, he was the MD and                details of the Board of Directors,
initial capital of Rs5.5 billion and will
                                            CEO at Infosys BPO.                           including, the personal details of
mainly offer savings and investment
                                                                                          each member and remuneration
products through its agency network.
                                                                                          paid to each Independent
                                            Other news                                    Director.
Indiabulls’ plans for a proposed life
insurance JV with Societe Generale          Hemendra Kothari, the ex-chairman
                                                                                         The Company Secretary will be
was terminated reportedly owing to          of DSP Merrill Lynch has finalised a
                                                                                          the Compliance Officer for the
differences amongst partners over           deal with ING Vysya Life, under
                                                                                          purpose of these guidelines.
the amount of capital to be invested.       which the former will purchase 11.5%
                                                                                          The company’s annual report will
It is reported that both companies are      stake in the life insurance JV. The
                                                                                          contain a certification from the
still interested in entering the Indian     stake is presently held by Ambuja
                                                                                          Compliance Officer stating
market.                                     Cements and is said to be valued at
                                                                                          compliance with these
                                            Rs1.9 billion. It is reported that            guidelines.
Capital infusions/plans                     Ambuja Cements had been looking
                                            to divest its holding in the JV owing
                                                                                      The IRDA has released its final
AEGON Religare has infused fresh            to lower than expected returns on its
                                                                                      disclosure norms. Life insurers are
capital worth Rs850 million to bring        investment.
                                                                                      expected to publish regular financial
the company’s paid up capital to                                                      disclosures in newspapers and on
Rs5.5 billion as of February 2010.          Reliance Life is reportedly discussing
                                                                                      their website w.e.f. 31 March 2010.
This capital is expected to be              the possibility of sale of a 15% stake,
                                                                                      The regulator has made the format of
directed towards strengthening the          a majority of which would first be
                                                                                      these disclosures available on its
distribution network of the company.        offered to a global insurance player.
                                                                                      website.
                                            Reportedly, the company is in talks
Birla Sun Life is planning to infuse        with China Life for the sale. The
                                                                                      It is reported that the IRDA
Rs1.75 billion capital by the end of        company also has plans to launch an
                                                                                      committee setup to review the
the current fiscal. It further plans to     Initial Public Offering (“IPO”) as soon
                                                                                      current regime applicable for
infuse Rs5 billion in FY2010-11 to          as allowed by the regulators.
                                                                                      bancassurance distribution, may
support the planned growth of the                                                     recommend that banks may be
company.                                    Bajaj Allianz Life has launched a tax-
                                                                                      allowed to sell products of multiple
                                            planning campaign, ‘Meet-Save-
                                                                                      life and general insurance companies
Canara HSBC Life has infused                Smile', in 30 cities. The insurer
                                                                                      as opposed to the current limit of one
capital worth Rs1 billion, increasing       intends to disseminate information on
                                                                                      life and one general insurance
its capital base to Rs6.25 billion as of    tax planning though its ‘tax
                                                                                      company.
December 2009. The fresh capital is         emergency van', which will travel
expected to be utilised for further         across various cities.
                                                                                      The IRDA has reportedly allowed life
expansion plans.                                                                      and non-life companies to jointly offer
                                            Max New York Life has launched ‘I-
                                                                                      ‘Health plus Life Combi Products’.
Future Generali Life is planning to         Genius’, a comprehensive ‘parent-
                                                                                      These products can be structured to
infuse Rs1.5 billion by the end of the      child nurture programme’, supporting
                                                                                      provide health insurance through the
current fiscal, increasing its capital      talent development of children by
                                                                                      non-life company and term
base to Rs8.17 billion. The company         identifying and rewarding those who
                                                                                      assurance through the life company.
plans to use this infusion towards          display all-round skills. The program
                                                                                      The premium for each component of
brand building and expanding its            will also help parents to provide an
                                                                                      the product is to be disclosed to the
distribution network.                       enabling environment for multi-
                                                                                      customer and each insurer can then
                                            faceted growth of their children.
                                                                                      retain the risk from its respective
HDFC Standard Life infused half a                                                     portion of the premium for the
billion rupees during FY09 and is           Future Generali Life and Aviva Life       product.
planning to infuse another Rs3 billion      have ventured into tele-commerce,
within this financial year.                 providing their policyholders the
                                            facility to pay premiums over the         The Union Budget
                                            phone using credit cards.
Max New York Life is planning to                                                      The Union Budget presented in
infuse Rs2 billion by March 2010 in                                                   February 2010 contains no mention
order to meet its expansion plans. Its      REGULATORY UPDATE                         of the much awaited increase in the
current paid-up capital stands at                                                     foreign direct investment cap in
Rs17.84 billion. Max New York Life’s        IRDA guidelines                           insurance industry, from the current
parent company, Max India, is                                                         level of 26 per cent to 49 per cent. It
reportedly set to raise Rs5.5 billion       The IRDA has amended the                  is reported that the Government may
through a fully and compulsorily            Corporate Governance Guidelines for       not take a decision on this until the



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parliamentary panel setup to study       IPO and other disclosure                 allowed to hold their policies in
this subject submits its report.         guidelines                               electronic form instead of holding
                                                                                  paper records. The key benefit of
Also, certain other requests made by     It is reported that the much awaited     this move is expected to be reduction
the life insurance industry, including   IPO guidelines, which were being         in costs and immediate availability of
allowing the insurers to carry forward   drafted by a joint committee of the      all policy related information.
losses for 12 years instead of the       IRDA and the SEBI, are further
current period of eight years, has not   delayed due to the turf war between      DISTRIBUTION
found any mention in the Union           the two regulators.
Budget.
                                         The IRDA is considering setting up a     Distribution news
However, the Union Budget proposes       committee to look into the               Reliance Life is reportedly planning
to provide some relief to insurance      expenditure management of                to expand its distributional network
companies by removing the service        insurance firms. It is reported that     over the next three years and will
tax applicable on all charges except     the regulator is worried about the       open 300 new branches in the same
the fund management charge on            high expense levels of the life          period.
unit-linked insurance plans sold by      insurance companies.
life insurers. This proposal would                                                Future Generali Life is also planning
bring consistency in the service tax     Following a similar directive to         to recruit 10,000 new agents during
regime applicable to the life            commercial banks, the banking            FY09-10.
insurance and mutual fund industries.    regulator, RBI, has asked rural banks
                                         to disclose the commission they          IDBI Fortis Life is planning to add 19
Other regulatory news                    receive from mutual funds and            branches within the next two months.
                                         insurance companies for marketing        The insurer presently operates from
Distributor compensation                 or referring their products to the       36 branches all over the country.
                                         banks’ customers.
The committee on Investor                                                         ICICI Pru has initiated a six-month
Awareness and Protection has             The IRDA has asked insurance             programme to provide insurance
submitted its recommendations to the     companies to provide information on      sales training to graduates from any
Government. Amidst strong                the commissions paid to the              stream. Upon completion of the
opposition from the insurance            bancassurance channel in the past        programme the insurer guarantees a
industry, the committee has              years, in a format specified by the      job in its sales team with an average
recommended a phased elimination         IRDA.                                    starting salary between Rs0.175
of distributor commissions embedded                                               million to Rs0.3 million per annum.
in insurance premiums by year 2011.      Products
The committee recommends that the                                                 Bancassurance and other
commissions on pure term products        The IRDA has now permitted the
are to be capped at 5 per cent from      insurance companies to sell their        tie-ups
year 2011. The High Level                products online. This will help
                                         insurers reduce distribution costs and   Following the distribution tie-up of
Coordination Committee of different
                                         lower the premiums charged.              ICICI Pru with Indian Post in Andhra
regulators is currently studying these
                                                                                  Pradesh, Gujarat, Karnataka and
recommendations and will soon
                                         It is reported that the IRDA may be      Uttar Pradesh, the life insurer has
decide on the next course of action.
                                         contemplating a cap on the maximum       entered into a similar referral
                                         reduction in maturity yields to          agreement with India Post in the
Regulating ULIPs
                                         policyholders (from the gross yields     states of West Bengal and Tamil
                                         earned by the insurer) on the            Nadu.
The IRDA and the securities market
regulator, SEBI, have been involved      traditional products, as it has done
                                         with the ULIPs.                          Max New York Life is reportedly
in a turf war over the regulation of                                              forming a bancassurance partnership
unit-linked products. The SEBI had                                                with Axis Bank, who previously had a
issued show-cause notices to many        Investment guidelines
                                                                                  bancassurance distribution
life insurers questioning the sale of                                             agreement with MetLife.
their unit-linked insurance plans        The IRDA is expected to widen the
(“ULIPs”) without obtaining SEBI’s       definition of “Infrastructure
                                         Companies” to include companies          Max New York Life has also tied up
approval. The SEBI claims that
                                         that are involved in the development     with the ‘NKGSB Cooperative Bank’
ULIPs come under its purview as per
                                         of a project as opposed to companies     to offer its life insurance products
the SEBI Act, whereas the IRDA
                                         which own the infrastructure projects.   through the network of 35 branches
says that these plans are governed
                                                                                  of the bank, enabling the insurer to
by the Insurance Act and as such
                                         De-materialisation of insurance          sell its products to over 500,000
come under the IRDA’s jurisdiction.
                                         policies                                 customers of the bank.
This issue is expected to be
discussed in the next meeting of the
                                         The Life Insurance Council is working    The company is also tapping the
inter-regulatory High Level
                                         on a proposal that will allow            retail ‘kirana stores’ (i.e. grocery
Coordination Committee.
                                         insurance companies to                   shops) to market ‘Max Vijay’, its
                                         dematerialise (“demat”) their            product for low income groups. The
                                         insurance policies, once this proposal   insurer has also entered into referral
                                         is approved by the IRDA. This will       arrangements with the owners of the
                                         mean that policyholders will be          retail shops, general merchants,




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mobile stores, chemists and other              sum assured at maturity, with a           premium top-ups and bumper
shop owners for the distribution of            minimum fund growth rate of 3             additions to the fund value at
this product.                                  per cent per annum.                       maturity, depending on the
                                               Guaranteed additions of 2 per             original term. Both plans offer a
SBI Life has entered into a strategic          cent of the average basic fund            facility of partial withdrawals
corporate tie-up with Coromandel               value over the last 60 months             during the policy term.
International Limited, through which it        will be added at the end of the
will offer the company’s insurance             tenth year and at the end of             The latest entrant in the market,
plans to the rural population in the           every fifth year subsequently.            IndiaFirst Life, has launched
state of Andhra Pradesh.                                                                 ‘IndiaFirst Savings Plan’, a unit-
                                              Birla Sun Life has also                   linked savings plan. The plan
Tata AIG life has entered into a               introduced ‘Immediate Income              allows the policyholder to inject
partnership with the Chennai Central           Plan’ a single premium annuity            money through additional
Cooperative Bank, an arm of Tamil              plan, offering guaranteed income          deposits as well as taking partial
Nadu State Apex Cooperative Bank,              over the entire life of the               withdrawals. At maturity, the
for the distribution of the its products       policyholder.                             policyholder may opt to receive
through the 64 branches of the bank                                                      the entire fund value in lump
across the state of Tamil Nadu.               Canara HSBC Life has launched             sum or defer the payment up to
                                               ‘Retire Smart’, a pension plan,           a maximum of five years.
PRODUCTS                                       with an optional life cover. The
                                               policyholder can opt for a single        The company has also launched
In response to the IRDA’s circular             premium or regular premium                ‘IndiaFirst Education Plan’, a
                                               payment plan, with additional             unit-linked plan with features
capping the charges on ULIPs, a
                                               flexibility in the choice of funds.       similar to the ‘IndiaFirst Savings
significant number of new products
                                               Loyalty additions as a proportion         Plan’. The plan is aimed at
have been launched by almost all               of annualised premium are                 providing financial support for
players in the industry in the last            added to the benefit payout at            the education of the child of the
quarter.                                       the vesting age.                          policyholder. In case of death of
                                                                                         the policyholder, all future
   Bajaj Allianz Life has introduced         The company has also                      premiums are invested by the
    a pension plan, with a single              introduced ‘Stay Smart’, a unit-          company as a lump sum.
    premium option named                       linked plan offering a whole of
    ‘Retirement Advantage SP’ and              life protection cover. The plan          Max New York Life has
    a regular premium option,                  offers loyalty additions as a             introduced a unit-linked plan
    named ‘Retirement Advantage                proportion of the annualised              focussing on the children’s
    RP. The plan offers a choice of            premium and the option of partial         education, named ‘Shiksha
    an immediate annuity for the full          withdrawals after the fourth              Plus’. The plan is specifically
    fund value at the vesting age or           policy year.                              designed to fund higher
    a lump sum payment of one-third                                                      education expenses, with an
    of the fund value, with the               HDFC Standard Life has                    additional feature of ‘Talent
    balance paid out as an annuity.            launched two unit-linked plans            Enhancement Withdrawal’,
                                               for children, ‘Youngstar Super            which allows the policyholder to
   Bharti AXA Life has launched               Suvidha’ and ‘Youngstar                   partially withdraw specified
    ‘Express Secure’, a unit-linked            Supreme Suvidha’, with similar            amounts from the fund value.
    plan with a guaranteed return of           features of a choice of funds,            The plan also offers loyalty
    up to 150 per cent of the first            additions at maturity and flexible        additions in the last six policy
    year premium payable at                    premium payment options. In               years and in case of death of the
    maturity. At maturity, the                 case of death of the                      policyholder, all future premiums
    policyholder may opt to receive a          policyholder, the annualised              are funded by the company. A
    lump sum payment or defer the              premium will be paid by the               special ‘Premium Upgrade’
    maturity proceeds to be payable            company till maturity of the              feature is available for providing
    in regular instalments over five           original policy. ‘Youngstar               additional benefits to the siblings
    years after the date of maturity,          Supreme Suvidha’ additionally             of the primary beneficiary.
    or a combination of the two                offers bumper additions to the
    options.                                   fund value at maturity.                  Tata AIG Life has also launched
                                                                                         a unit-linked child plan, ‘United
   Birla Sun Life has launched               The company has also launched             Ujjwal Shiksha Plus’, with a
    ‘BSLI Dream Endowment Plan’                similar unit-linked endowment             waiver of premium option in case
    and ‘BSLI Dream Retirement                 plans, ‘Endowment Supreme                 of death of the policyholder. The
    Plan’, as a part of its unit-linked        Suvidha’ and ‘Endowment Super             plan offers guaranteed maturity
    ‘Dream Plan’ series. These                 Suvidha’ with an option of single         additions of up to 9 per cent of
    plans guarantee a return of basic                                                    regular premium fund value.




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Richard Holloway                            Sanket Kawatkar                           R Krishnamurthy

Practice Director                           Head                                      Managing Director
Risk Consulting and Software                Risk Consulting and Software              Risk Consulting and Software
Asia Pacific                                India                                     India
Towers Watson                               Towers Watson                             Towers Watson

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The views expressed are those reported in the press and are not those of Towers Watson. Action should not be taken
on the basis of any article without seeking specific guidance.




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